Many, if not most, companies have unclaimed property that is held by a company for its rightful owner. While holding the unclaimed property, a company is required to file reports annually with one or more states and/or jurisdictions (hereinafter collectively referred to as “states”) and to eventually remit the unclaimed property to a state if the owner does not recover the unclaimed property in the meantime. In the absence of the rightful owner, a state holds the unclaimed property in perpetuity for the rightful owner or heir. Prior to recovery by the owner or heir, funds are used for the benefit of the state and its citizens.
Unclaimed property generally consists of intangible personal assets and the contents of safe deposit boxes. Intangible personal assets can be divided into two broad categories: securities-related property and general ledger property. Securities-related property includes stocks, bonds, dividends and interest. Examples of general ledger property include payroll, vendor checks, advance deposits, credit balances, gift certificates, insurance proceeds and prepaid credit cards and other balances. A more complete listing of types of abandoned property is provided by Appendix A of The Little Book About Abandoned Property, 6th Edition, ACS Unclaimed Property Clearinghouse (2003), the contents of which are incorporated by reference herein.
Each state has a statute that governs the disposition of unclaimed property. The purposes of the statutes are generally to reunite owners with their unclaimed property, prevent subsequent claims by the owner against the company that originally held the unclaimed property on behalf of the owner after the company has transferred the property to the state, and to ensure that if an owner cannot be found, the economic windfall attributable to the return on an investment of the unclaimed property inures to the citizens of the state, not to the company that initially held the unclaimed property. Pursuant to the various state statues, property is generally considered unclaimed when there is lack of owner-generated activity. Evidence of the lack of owner-generated activity may include the failure to cash a check, the return of correspondence or a check by the U.S. Postal Service as being undeliverable or the absence of any other communication from the owner. Property is, in turn, considered abandoned when it remains unclaimed for a predefined number of years, as prescribed by a particular state's statute. The period during which the property remains unclaimed prior to becoming abandoned is referred to as the dormancy period. Dormancy periods vary by type of property and by state, but are frequently 3, 5 or 7 years. After the dormancy period the company is required to report the property, either to the state of the last known address of the owner or, if the company's records do not indicate an address or identify the owner, to the company's state of incorporation. Although the requirements vary by state, companies that hold unclaimed property often also have an obligation to attempt to notify the owner of the unclaimed property. Again, although the timing will vary depending upon each state's statutes, the company is eventually required to remit the abandoned property to the state of the last known address of the owner or, if the company's records do not indicate an address or otherwise identify the owner, to the company's state of incorporation. Reporting is an annual obligation, with reporting deadlines that vary from state to state. Depending upon its statute, the state may then attempt to contact the owner and, in any event, thereafter holds the abandoned property on behalf of the owner. While holding the property on behalf of the owner, however, the state can invest the abandoned property with the interest on that investment inuring to the benefit of the state and its residents.
Companies have historically been relatively poor about reporting unclaimed property to the state. This poor reporting may be attributable to various factors, including the general lack of knowledge on the part of companies as to their reporting obligations. Failure to properly report unclaimed property may make it more difficult for the rightful owner to reclaim the unclaimed property, since the owner may have a difficult time locating the holder of the property. Additionally, failure to properly report unclaimed property deprives the states and their citizens of the benefits that inure to the holder in the form of interest that is otherwise earned by a state's investment of the unclaimed property.
As a result of recent compliance efforts, the reporting of unclaimed property by companies has improved. However, it is believed that a number of companies that hold unclaimed property, and therefore should report unclaimed property, still fail to do so. Additionally, it is believed that a number of companies that hold unclaimed property and that file reports with one or more states do not fully report the unclaimed property that is held. As such, these non-reporting and under-reporting companies are not only subjecting themselves to the penalties that may be imposed under the various state statutes governing the reporting of unclaimed property, but the states and their citizens are deprived of the interest or other investment income from the unclaimed property that should have been remitted to the state. As such, it would be advantageous to provide improved techniques for monitoring compliance with the reporting of unclaimed property and for further educating companies regarding their reporting obligations such that a greater percentage of unclaimed property is reported in compliance with the various state statutes.